Iaido skills are named after the katana. To use a skill, the Samurai must know it and have a copy of that katana in his/her inventory (not equipped). The Samurai invokes the spirit of the katana (without charge time), which generally deals damage to nearby enemies, though one (the Murasame) heals allies instead, and a second (Kiyomori) bestows Protect and Shell. Occasionally the katana used from inventory may break. This can be especially bad for rare katana, such as the Masamune. Iaido skills calculate damage using the character's Magick Power value, making this skill a decent second choice for magick-based classes.

Marquis Elmdore uses a command ability called Sword Spirit, which has the same set of skills as Iaido, including the broken-sword drawback.

Purifying Breeze. A technique that releases the spirit in the user's katana, bestowing the protection of its effervescent life force.Effect:Protect, Shell.Quote: "Innocent sword, slash evils and protect! Kiyomori!".

Iaido is a Japanese martial art associated with the smooth, controlled movements of drawing the sword from its scabbard, striking or cutting an opponent, removing blood from the blade, and then replacing the sword in the scabbard.

Its incarnation as the ability to draw out the spirit of the sword refers to several legends within samurai culture and the Japanese swordmaking community. A quality blade is said to be made with the full spirit and focus of its maker, transferred through the process of its creation, and in turn, its ideal wielder is one that matches the spirit of the individual who made the blade.

Within the context of Final Fantasy Tactics, what every soul of the katana has a historic and/or legendary basis:

Kotetsu's Binding Darkness relates to a lesser known tale on Kotetsu's ill-mannered temper. A commissioning samurai complained of Kotetsu's sword in forge not looking strong enough. Kotetsu slashed down his customer to prove him wrong and ran off to another province to avoid arrest. Kotetsu was also once an armorer, and had used his knowledge to allow his blades to hew and cleave through armor.

Osafune refers to the legacy of Mitsutada and his family line of smiths of the Bizen school, in which they pioneered the second steps of revolutionizing the katana. Because of his fame for his and his family's strong swords, Osafune cemented Bizen as one of the Five Major Schools of the Koto Era of Katana, and drew the most aspiring smiths to their tutelage. Their fame grew during the days of the civil wars of the Genji and the Taira, and though the name of Osafune lived on, their first era of decline would happen around the days of the Sengoku, where the focus on artistic and quality would have to take a backseat to mass demand and quantity.

Kiyomori refers not to the name of a smith, but to that of its wielder; Taira no Kiyomori's sword was a katana by the name of Nuke-maru created by the son of Amakuni Yasutsuna, Ohana Sanemori. Nuke-maru was made for protecting Emperor Saga of the Heian Era, which is why it bestows defensive magicks.

Muramasa's swords were feared for their violent and bloodthirsty nature; it was said that Sengo Muramasa was a mad genius whose direction was focused on practicality and lethality, but whose behavior was crazed and unstable, as he broke swords that did not live up to his expectations. Reinforced by how his swords were made in Japan's most violent eras of civil war, and were haunting the Tokugawa family due to a personal grudge in the years after, it is alluded that his swords represent warriors driven by a lust for carnage and unstable in spirit with an obsession for killing.

Kikuichimonji refers to the legendary collaboration launched by Emperor Gotoba and thirteen of the best smiths of Japan of his time. Such works helped further pave the way to the Golden Age of Koto katana. The Kikuichimonji are praised for their beauty and refinement that established the third steps of revolutionizing the katana, but such a collaboration came to a halt when the aftermath of the Genpei Wars saw Emperor Gotoba exiled to the islands of Oki, and forced to never again come in contact with his fellow artists.

Masamune is the most celebrated of the smiths of katana. He was famous for his strong body forge and establishing the creation of katana as a craft of art. He was praised by both nobility and the populace. According to historic chronicles he had a good-natured character; the son of the smith Yukimitsu, Masamune was born of a tryst outside of Yukimitsu's marriage during one of his visits to the Imperial Forge. With Yukimitsu able to claim an heir to his craft, his wife Oaki refused to acknowledge Masamune as her son, and tried and poison him, believing he wanted her to die. When Masamune reported this to his uncle this led to an outrage as to summon his maternal grandfather Morikawa Umenosuke to punish Oaki by death. Not wanting his stepmother to be slain needlessly, Masamune stepped in the path of Morikawa's onslaught, causing instead the blade to graze Oaki's back. With the blood mysteriously forming a mandala upon spattering onto the ground, it was revealed Oaki was possessed by a demon and was exorcised by the actions of Morikawa and Masamune. Along with this account, Masamune's blades would further gain renown by the Tokugawas as weapons antithesis to Muramasa, being hallowed and pure, and hence touted as blades representing benevolent warriors and defenders of peace.

Chirijiraden refers to blades made for the nobility. The name refers to the fittings that decorate the handle and the scabbards. To attain the highest ranks of society meant being born into such lofty ranks, or when times of social upheaval made themselves known, to fight one's way to the top. As the weapon bears blades of any maker, and of only the best make themselves to their owner, the Chirijiraden represents the soul of the samurai in its core: an indomitable spirit and their utmost efforts with their entire being.